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Tobacco Pact Calls for Strict Federal Controls

By John Schwartz and Saundra Torry
Washington Post Staff Writers
Saturday, June 21, 1997; Page A01

The nation's biggest tobacco companies agreed yesterday to submit to strict federal control over the way they make and market cigarettes and to pay $368.5 billion over the next 25 years to compensate states and individuals for tobacco-related health costs.

The agreement marks the first time that the industry has ever settled smoking-related legal claims. It constitutes the most restrictive set of regulations ever imposed on an industry manufacturing legal products, and the multibillion-dollar pot far outweighs that of any settlement in history. It will continue to be collected after the initial 25-year term of the agreement.

The deal announced yesterday by a core group of attorneys general suing the industry will still have to be reviewed by the White House and passed by Congress before it can take effect. A number of critics said the proposal falls short of ideal. But if its terms become law, it will restructure the tobacco industry and revolutionize the nation's tobacco control efforts.

The deal gives anti-tobacco negotiators the things they wanted most. First, it imposes advertising and marketing agreements that would go into place as soon as the deal is finalized and that go further even than the broad restrictions called for by the Food and Drug Administration, which have been struck down by a federal court.

Yesterday's deal bans tobacco logos on T-shirts and other promotional items, as well as all outdoor advertising, tobacco sponsorship of sports events, and any character-based advertising.

"In essence, the Marlboro Man will be riding into the sunset on Joe Camel," said Robert Butterworth, Florida's attorney general, at a packed news conference yesterday afternoon.

In addition, the deal provides billions of dollars to repay states for the costs of tobacco-related health costs and to fund broad nationwide anti-smoking ad campaigns and tobacco cessation programs. Distribution of the payments would be determined by a presidential commission. The industry will even pay for enforcement of the new rules it will have to live by. Moreover, tens of billions of dollars will be used to fund a national health insurance program for needy children. The industry will also pay the fees of private attorneys involved with the suits, though their share has yet to be determined.

The deal obliges tobacco companies to ensure progressive reductions in youth smoking rates over the next 10 years. Any company failing to hit the mark would be punished by f ines of $80 million per missed percentage point per year -- the estimated value of company profits from each percentage point over the smokers' lifetimes.

The industry also concedes broad regulatory authority by the FDA, including control over components of tobacco products and the ability to ban nicotine after 2009. At the news conference, Attorney General Christine Gregoire of Washington state said that merely reducing nicotine content would not be enough, however, because that would leave a product that was "nonaddictive and deadly."

For its efforts, the industry did not get what it initially demanded: blanket immunity from litigation. Instead, it came away with a measure of predictability in future lawsuits, including a protection from having to pay more than $5 billion in damages in any one year and protection from having to pay any punitive damages for past acts. At the same time, the agreement will bar collective suits against the industry, from "aggregated" claims by smokers to vast class actions.

Perhaps more important to the industry, one tobacco executive said, the settlement could modify the industry's pariah status. "We may manufacture a product that's controversial, but it was time to fit back with mainstream America," the executive said.

Philip Morris senior vice president Steven Parrish called the proposal "a bitter pill" but added that "on balance, this plan is preferable to a continuation of a decades-long controversy that has failed to produce a constructive outcome for anyone." He said that the companies have agreed to support, "subject to approval by our boards of directors," a package containing provisions "with which we do not necessarily agree."

Yesterday lead negotiator Mike Moore, attorney general of Mississippi, stressed that the settlement proposal creates a $60 billion fund "in punishment for [industry's] past actions" as part of the total payout. The issue of whether the industry has been punished enough will almost certainly figure into whether the deal is accepted by the White House, Congress -- and, ultimately, the public.

President Clinton commended the negotiators on their efforts but would not formally endorse the proposal until it has been subjected to "the strictest scrutiny."

An administration official familiar with the White House review plan said the study would take from four to six weeks by a panel headed by Health and Human Services Secretary Donna E. Shalala and presidential adviser Bruce Reed. Shalala has been the administration's most skeptical internal voice on the ongoing tobacco negotiations and pledged a "rigorous review" of the proposal "from every angle."

Moore said he had the "overwhelming support" of the other 39 attorneys general that have filed suit against the industry, but several yesterday expressed concerns about whether the deal was tough enough.

Hubert H. Humphrey III of Minnesota, a vocal opponent of any settlement, said, "The deal falls short of achieving our goals of protecting the public health and holding this industry accountable for 40 years of lies, conspiracy and deception."

Maryland Attorney General J. Joseph Curran said he was concerned that the deal abridged the rights of people who want to "band together" to sue the industry and allows the companies to pass off their monetary punishment "onto their already addicted clients" through higher cigarette prices.

Other interested parties were less critical. Matthew L. Myers of the National Center for Tobacco-Free Kids, who participated in the negotiations as an unofficial representative of the public health community, said that whatever the settlement's flaws, it constitutes "the single most fundamental change in the history of tobacco control in the history of the world."

"Will it work?" Myers asked. "I think history will tell." Whatever the outcome, he said, "We have set our nation on a fundamentally different course."

After decades of refusing to settle even a single lawsuit, tobacco was brought to the negotiating table by attacks on two fronts: the Clinton administration's move to broaden the FDA's authority over tobacco products and the onslaught of 40 state suits and 17 huge class-action lawsuits.

The well-financed attacks were based on new legal theories and posed a kind of threat the industry had never seen before.

Juries have almost always blamed smokers for their habit. But the states did not smoke the cigarettes. They simply had to pay the Medicaid fees when their needy citizens became sick, and so sued for reimbursement.

Similarly, the class-action suits were based on addiction, not health damage, and turned on newly-unearthed industry documents showing the companies may have understood the addictiveness of their products and hidden the evidence.

The negotiations began April 3, after the industry approached Moore and his allies through contacts at the White House. Meetings began in strictest secrecy and came to include representatives of the major tobacco companies, a core group of attorneys general and private trial lawyers, and representatives of the public health community.

By the end of the process, armies of reporters and television crews were camped out at the District's Park Hyatt and ANA hotels, watching every movement and expression as negotiators shuttled between meeting rooms and even trying to interview them at urinals.

Moore said the deal would accomplish more for public health than any of the lawsuits could have.

He characterized the long, "grueling" negotiations as "the most contentious I've ever seen in my life -- down to the last couple of minutes."

Throughout three months, the negotiations had threatened to collapse several times, and yesterday was no exception.

The last-minute rush to agreement came to a dead stop yesterday morning over the final sticking point: a demand by the anti-tobacco forces that the Brown & Williamson Tobacco Co. drop its legal attacks against whistleblower Jeffrey Wigand, a former top researcher for the company who went public on cigarette safety issues.

Moore said the state officials wanted "to make sure that we didn't leave any prisoners or hostages on the beach."

The entire process was stalled while the negotiators waited to make contact with Martin Broughton, the CEO of Brown & Williamson's parent company, British American Tobacco.

He was on a train at the time and incommunicado, but when he emerged, a heated 30-minute conference call with the chief executive officers of Philip Morris and R.J. Reynolds Tobacco Co. ensued.

Finally, Broughton relented, and the negotiators could move forward once again -- some two hours after the scheduled time for the news conference to announce the deal.

Watching yesterday's announcement, Washington trial lawyer John P. Coale, a member of the negotiating team, said:

"We've put in 200,000 hours and $10 million in expenses. We are very tired and very happy."

IN THE DEAL

$368.5 billion over 25 years in tobacco industry payments. Some of the money would fund children's health insurance; some would pay compensatory damages.

Strict regulation of tobacco sales and marketing, including a ban on billboard ads and near-elimination of color ads.

Fines on the tobacco industry if youth smoking does not decrease by specific levels.

FDA authority to regulate nicotine as a drug, including required disclosure of cigarette ingredients and the option to ban nicotine after 2009.

Industry immunity from class-action and similar lawsuits, although individuals could still sue for actual damages from past tobacco use.

Warning labels on cigarette packages that would take up 25 percent of the surface, with messages such as "Smoking Can Kill You."

© Copyright 1997 The Washington Post Company

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